Premium
The Economic Value of Volatility Timing
Author(s) -
Fleming Jeff,
Kirby Chris,
Ostdiek Barbara
Publication year - 2001
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00327
Subject(s) - volatility (finance) , econometrics , economics , forward volatility , stochastic volatility , volatility risk premium , explanatory power , transaction cost , volatility swap , realized variance , implied volatility , variance swap , financial economics , microeconomics , philosophy , epistemology
Numerous studies report that standard volatility models have low explanatory power, leading some researchers to question whether these models have economic value. We examine this question by using conditional meanm‐variance analysis to assess the value of volatility timing to short‐horizon investors. We find that the volatility timing strategies outperform the unconditionally efficient static portfolios that have the same target expected return and volatility. This finding is robust to estimation risk and transaction costs.